Posted by: Ron Grover on November 6, 2009

Even before Steven Spielberg’s newly reformulated Dreamworks SKG makes its first film, his studio is moving – well, sort of. BusinessWeek has learned that movies made by Dreamworks, headed by Spielberg and producing partner Stacey Snider, will be moving from the Starz pay TVLMDIAto Showtime (CBS).

The move, which has yet to be announced, is being driven by the Walt Disney Co.(DIS), which signed on to distribute Spielberg and Co.’s films in February. That deal included a provision by which Starz would distribute Disney’s films under an existing agreement by which Starz distributes all of Disney’s films to its pay TV customers. Now, it appears that Starz doesn’t want to distribute Dreamworks movies to its cable and satellite viewers, and is pressuing Disney to find someone else to do it instead. Enter Showtime.

Why wouldn’t Starz want to show films from the hitmakers at Dreamworks or, more importantly, give up a shot at Spielberg flick? Starz, Dreamworks and Showtime aren’t commenting. But try to follow Starz’ reasoning, if you can: pay channels like Starz get a piece of the annual $10-12 a month that a cable operation collects from customers who get the channel. So, let’s say that Starz has 18 million subscribers, the last number Liberty reported to the SEC. If it gets, say $5 a month from each of those subscribers, it generates revenues of $90 million a month or about $1.1 billion a year. The problem comes in the payout to Disney. Pay channels pay studios a fee on the number of films they get from the studio, but the fee escalates as the film does better at the box office.

Starz execuitves, as I understand, were concerned that they hadn’t bargained for a slew of big blockbusters when they initially signed their deal with Disney. In its most recent SEC filing, Starz parent company Liberty Media Entertaiment says that “the number of qualifying films under Starz Entertainment’s output agreement with Disney may be higher than it would have been otherwise” as a result of the Dreamworks deal. The point is that Starz, which through the first six months of this year had seen its operating earnings increase to $187 million from $113 million a year ago, is in a bind. Its revenues were fixed, while its faced the prospect of skyrocketing costs.

On the other hand, Showtime could use a boost in the number of films that it puts on its service. That’s because last year it lost the films it had distributed from Paramount(VIAB), MGM and Lionsgate (LGF). After a nasty negotiation over the fees that Showtime was willing to pay, the trio left to start their own pay channel, Epix, which is just now rolling out. As Showtime starts lining up for its next round of negotiations over fees with cable and satellite operators, it likely would love to have Spielberg & Co. as one of its headline acts.

Dreamworks already has plenty of ties to Showtime. Spielberg is executive producer for the show United States of Terra that Showtime airs. Spielberg and Snider are also producing a show on the behind the scenes making of a Broadway play for the pay channel. When will the first Dreamworks flick appear on Showtime? Probably not until next year. The studio is making Dinner for Schmucks, a comedy starring Steve Carrel with Paramount, but that’s being distributed on HBO. The first Dreamworks movie for Disney – and presumably for Showtime – would likely be Real Steel, a futuristic boxing film that The Pink Panther director Shawn Levy has signed to direct.

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